SSP No. 26 April 9, 2002

Social Security

The Trust Fund, the Surplus, and the Real Social Security Problem

by June O'Neill

June O'Neill is Wollman Professor of Economics at the Zicklin School of Business and director of the Center for the Study of Business and Government at Baruch College, City University of New York. She was director of the Congressional Budget Office from 1995 to 1999.


Executive Summary

Recent discussions of Social Security's future solvency have been dominated by misleading and inaccurate portrayals of the Social Security Trust Fund and the impact of budget surpluses on the program's finances.

In reality, the Social Security Trust Fund is an accounting measure, not an accumulation of real assets that can be used to pay future benefits. That means current discussions of Social Security "lock boxes," or whether the Social Security "surplus" is being "raided," are essentially irrelevant to the program's future. The federal government lacks a mechanism that would allow it to save today against the future demographic and financial pressures that will make Social Security's current structure unsustainable over the long term.

Congress should stop playing verbal games over what are essentially accounting gimmicks and begin the serious project of Social Security reform. Ultimately, that reform will have to involve allowing workers to privately invest a portion of their Social Security taxes through individual accounts.

Full Text of SSP No. 26 (PDF, 9 pgs, 60 Kb)

2002 The Cato Institute
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